GC’s Darr: SCS “most uncertain peril” where modelling is concerned

Amid increasing frequency and severity of severe convective storm (SCS) losses, Guy Carpenter’s global head of peril advisory Josh Darr has said that such events are rightly receiving “a tremendous amount of attention” on the modelling front, both in the US and internationally.

Speaking to The Insurer TV in the run-up to the APCIA Annual Meeting in Boston this week, Darr explained the main challenge with modelling SCS is due to it being a composite peril made up of wind, hail and tornado.

“I think we're still really struggling to get our arms around SCS,” he said. “It's three different perils, right – it's wind, it's hail, it's tornado, and it can be the convolution of two or three of those at the same time.”

Darr explained that SCS is an area Guy Carpenter has been doing “a lot of work on” due to the impact it has had on both clients and the industry. He noted that it was a misnomer that climate change was primarily responsible for driving the unpredictability of SCS losses.

“One of the things we're seeing when it comes to that peril is that the contribution of a changing climate is actually a minority of the contribution of loss increases – but overall, we'd say severe convective storm is arguably the most uncertain of perils, as the knowledge of the science and the data available is not as great and as accurate as other perils,” he said.

However, at the other end of the spectrum, Darr was “pretty confident” that an increase in severity and frequency of precipitation-based perils was associated with climate change.

Now that the correlation between climate change and the likelihood of some nat cat has been established, Darr sees the industry as having a “social obligation” in promoting climate finance.

“We have made a lot of strides in quantifying weather volatility and its association with climate, and that journey continues on. Now that we have that baseline of understanding, then it's almost our social obligation as an insurance industry, a social good you might even say, to pivot towards actioning climate finance in a way that could build adaptation resiliency measures,” he said.

One of the ways Darr explained that Guy Carpenter goes about doing this is through partnerships with organisations that promote climate financing, such as the Insurance Institute for Business & Home Safety and the Risk Modeling Steering Group.

Darr saw Guy Carpenter’s interest in climate finance as part of a larger trend as one of the of the main themes of the upcoming COP28. He hoped that the publicity generated by this would lead to a real leap forward for climate financing.

“We will hear a lot of headlines and a lot of evaluation, and then hopefully coming out of COP28 we'll have some pertinent and actionable methods,” he said.

Focus in multi-model approach

Another way that Darr sees the industry improving outcomes from natural catastrophes is through the move to a multi-model approach.

“I've been in the field for over 20 years now and I think one important aspect [of the improvement] of it is a multi-model approach,” Darr said.

As Darr put it, this is necessary because “there's no one single measure of risk that will describe the profile you're facing as an insurance entity”.

In order to go about manufacturing these new models, insurers will have to collate data from previously uncharted areas. One of these areas that Darr saw as having a lot of potential was academia.

“Our industry is getting a lot sharper with targeted academic relationships. And that really helps us bring research into insurance operations and affording acceleration of our risk assessment. And targeting these relationships ensures that we're bringing forth great outcomes that can advance our underwriting portfolio management, regulatory demands, claims best practices.”

Another is the insurtech space, which Darr sees as having gone through a “maturation” which has led to the utilisation of tech such as “satellites, radars, drones”, resulting in the production of “tangible data with proven experience” to be used in models.

Watch the full interview with Josh Darr for more on: